The Bear Stearns Conference Call

By David Gaffen

Executives at Bear Stearns are addressing the news of the firm’s need for capital, provided by the Federal Reserve through J.P. Morgan Chase. Shares have plunged today and the company has shifted its earnings report, previously scheduled for Thursday, to Monday.

12:30 P.M. ET: While the bulk of the investment community is listening to classical music in anticipation of the call’s beginning, here’s an update of where the world stands. Bear Stearns shares are down 36.7% on more than 100 million shares traded, making it easily the most actively traded stock on the Big Board today. The options market shows a ballooning in interest in put options at the $20 strike price – more than 29,000 contracts have traded, and headed into today there was no open interest at this strike.

12:37 p.m.: Finally, the call is beginning. Elizabeth Ventura of Bear’s corporate communications department is starting the call with the usual boilerplate about forward-looking statements.

12:38 p.m.: Sam Molinaro, CFO notes that the firm is moving up its earnings relase to Monday, and also to share some information on the shared loan facility.

12:39 p.m.: Mr. Molinaro turns it over to Alan Schwartz, CEO, who immediately sets about blaming rumors. “Bear Stearns has been subject to a significant amount of rumor and innuendo over the past week. We attempted to try to provide some facts to the situation but in the market environment we’re in, the rumors intensified and given the nervousness in the market a lot of people it seemed wanted to act to protect themselves from the possibility of rumors being true and didn’t want to wait to see the facts.” MarketBeat is having a hard time remembering what “facts” the firm put out other than to say the rumors weren’t true.

12:41 p.m.: “Through the early part of the week we had good liquidity but the “concerns on the part of our counterparties, our customers and our lenders got to the point where a lot of people wanted to get cash out,” Mr. Schwartz says.

12:42 p.m.: Mr. Schwartz drops this fact — that the firm has been talking to Lazard about “alternatives.” He doesn’t elaborate on this, and quickly opens the floor for questions.

12:46 p.m.: Guy Moszkowski of Merrill Lynch wants to know where the liquidity problems came from — prime brokerage, repo markets, or what. Mr. Molinaro notes that both he and Mr. Schwartz said earlier in the week that liquidity issues were not a problem at the beginning of the week, but “I would would say on Thursday we experienced pretty broad cash outflows from a number of different sources,” including prime brokerage and repo, and also saw “mark-to-market calls on open derivatives contracts. It was from a lot of places and there was a lot of concern in the market, and we had a significant level of outflows.”

12:49 p.m.: Mr. Schwartz, in response to a question, notes that the reason the firm went to J.P. Morgan was because the firm “is the clearing agent for our collateral. It’s easy for them to see the kind and quality of the collateral we had available and therefore could move very very quickly.”

12:52 p.m: Mr. Molinaro is asked about the firm’s view on its liquidity ratios in terms of coverage of unsecured debt. He says this ratio has actually increased because the firm’s short-term unsecured debt has “rolled off,” or declined. But then he goes again after market rumors. “The difficulty we found ourselves in was, counterparties that were providing secured financing against assets that were well liquid and routinely financed, they were no longer willing to provide financing,” he says. This was a result of a market being “fanned by rumors that were not true,” he adds.

12:54 p.m.: Glenn Schorr, analyst at UBS, wants to know if the facility being provided through J.P. Morgan (the size is not known) is large enough to “fill the gaps of all the pulled lines” from those who pulled credit lines from the company. He also wants to know if the 28-day lending facility from J.P. Morgan was given that length because the Fed’s Term Lending Facility comes into play during that time period. Mr. Schwartz says Bear Stearns has “been able to convince customers and counterparites that we have the abillity to fund ourselves every day and do business as usual and there is overlap where liquidity does become available to us and other dealers on some other very high quality collateral.”

12:55 p.m.: Mr. Schwartz continues, calling the facility a “bridge to a more permanent solution.” He then goes back to talking about fact vs. fiction (although the firm’s statements earlier in the week, about not having any liquidity problems, are clearly no longer operative, and the firm did not provide any detail, either. He says the facility is a “bridge to look at strategic alternatives which could run the gamut, but put us in the position where… investors will be able to see the facts instead of the fiction.”

12:56 p.m.: The brief call ends. Shares are down 39%, having not received any kind of boost from the call. The company’s credit default swaps, which measure protection against default on debt, are in a range of 690 basis points to 720 basis points, which is slightly better than the 730 level quoted earlier in the day, but still worse than 685 yesterday, according to Phoenix Partners Group, a derivatives broker.

Comments (5 of 35)

Joke is on S&P and so-called 'rating agencies'. Why those notoriously arrogant creatures are so imcompetent at one thing they're supposed to do?

7:12 pm March 14, 2008

Ryzwan ZAVERI wrote :

"Beware the Ides of March," !

5:43 pm March 14, 2008

Sniglet wrote :

Why is it that downgrades only happen AFTER markets have already trashed the asset? Why weren't the rating agencies out ahead of the problems with Bear, dropping the credit rating BEFORE the stock tanked, and the company was announcing possible failure?

I guess I could ask the same thing about why the ratings for debt securities are only downgraded after the markets have already started trading them as junk, but I'll save that one for another day...

5:38 pm March 14, 2008

Birddog wrote :

Isn't the Fed simply helping to replay the disasterous Japanese Bubble burst of the 1980's and 1990's...When the Japanese goverment kept bailing out the failing Banks in that country? I seem to recall that the general consenus at that time by every reputable economist in the West pointed to simply letting the inefficent Japanese Banks and lending institutions go under so that the market forces would right themselves after a short painful period... Will someone please tell me what is differnt in the US economy today to justify this massive (and apparently futile) bailout the Fed is engeneering?

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